Global Trade Management and Supply Chain Finance

1
Global Trade Management and Supply Chain Finance

• Delivering Competitiveness in Global Supply
  Chains
• June 2nd, 2008

2
Going Global

• Globalization is driving fundamental changes in
  business models that heighten the importance of
  Supply Chains
• Outsourcing Low-cost country sourcing
• Longer, more complex supply chains
• Increased compliance and security Requirements
• Technology is altering business models
• Globalization increases opportunities
• New markets channel
• Supplier innovation
• Lower costs
• While accentuating the risks
• Delivery risks
• Performance risk
• Compliance risks
• Payment risks

3
Value Chain Convergence

• Convergence of Three Value Chains
• Physical
• Informational
• Financial
• Strategic approach to dealing with global trades
  inherent complexities called Global Trade
  Management
• Marrying PEOPLE and PROCESSES and the leveraging
  of integrated INFORMATION TECHNOLOGY to unite the
  disparate functions and constituents involved in
  global trade to optimize supply chain efficiency
  and effectiveness.

4
What is GTM, Really ?

• GTM Supply Chain Management Supply Chain Risk
  Management
• Integration of Financial Physical Supply Chains
  focused on delivering cost efficiency
• Accelerated by technology and inter-corporate
  process integration
• Importance heightened by off-shoring and
  increasing complexity of SCs
• What does it mean to

Large Corporate Buyers
Mid-Market SMES (Tier 2, 3 etc.)
Financial Institutions

• SC process integration drives out cost and
  creates competitive advantage
• Fewer, but deeper supplier relationships
• Use visibility (technology) to reduce risk
• Untie capital locked in SC (inventory
  optimization DPO increases)

• Elimination of L/Cs in favour of Supply Chain
  Finance
• Focus on transactional finance models required
• FIs key integration / services hubs for SC
  processes
• Data-triggered financing

• W/C challenges
• Longer cash conversion cycle
• Assuming greater risks
• Limited negotiating power

5
Key Data from EDC Research

• Canadian Bar-Bell
• Procurement / supply chain management remains a
  buying function for most SMEs
• Limited view of strategic role of supply chain
  management
• Many manufacturers live in the area code supply
  chain model
• Going offshore seen as important, but..
• Limited skill and capacity engage in global
  sourcing
• Inventory investment required due to long lead
  times
• Fear of quality / performance / delivery risk
• Most are underinvested in technology, yet
  recognize its value in participating in global
  supply chains.

Priorities SMEs People Cash Flow Mid-size and
larger People, Process, Financial Efficiency
6
The Supply Chain Framework
Financing (e.g. lines of credit, term loans)
Risk Management (e.g. insurance, bonding)
Cash Working Capital Mgmt.
Compliance Management (e.g. SOX, customs,
security)
Connectivity (e.g. technology platforms)
Other Services (e.g. consulting, education, trade
promotion)
7
Key drivers in Global Supply Chains
Source Aberdeen Group. December 2007.

• Global Trade Management (GTM) and Supply Chain
  Finance (SCF) are emerging as increasingly
  critical areas of focus as supply chains evolve
  in terms of global reach and complexity.

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Supply Chains Managing the Working Capital
Reduce, parts complexity releases
Optimize product testing
Reduce Lead Times WIP
Optimize Procurement / Purchasing
Reduce Finished Goods
Reduce Inventory

• Buyer / Supplier collaboration seeks to
  accelerate cash flow and eliminate cost from the
  supply chain

Source Boston Consulting Group, EDC. May 2008
9
What is Supply Chain Finance?

• The primary Financial Supply Chain trend in the
  past decade has been the growth in Open Account
  (O/A) transactions, or trading on O/A terms
• Combination of financial services and technology
  solutions that
• Links Buyers, Suppliers Financing providers
• Reduces financing costs
• Increase credit availability throughout the
  supply chain
• Links logistics and goods tracking to financing
  decisions
• Leverages visibility into supply chain events to
  mitigate risk

Reducing Total Cost and Working
Capital Accelerating Cash Flow Reducing Supply
Chain Risk
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SCF Types

• Open Account instead of L/Cs
• Extended Payment Terms
• Receivables Factoring
• Supplier Payment Programs (a.ka. Reverse
  factoring
• Vendor Managed Inventory

• Raw materials financing
• Raw materials purchasing programs
• Purchase order financing
• Work-in-progress financing
• Extended supplier payment terms

• Vendor Managed Inventory
• 3rd Party Inventory Ownership
• Goods in Transit Financing
• Inventory Finance

11
Supply Chain Visibility is key SCF
Handheld RFID Reader
Pallet or Carton - RFID Tag
Fix RFID Reader
Fix RFID Reader
Fix RFID Reader
1,2
3
4
5,6
7
8
10
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Transportation process
Customs Clearance
Inventory Update
Inventory Update
Booking Request
Purchase Order
POD
ASN
Bill of Lading
Status Update
Status Update
Status Update
Flow of Goods, Information and Funds
Supply Chain information is gathered, aggregated
and normalized from multiple points and systems,
providing a single view across orders, inventory,
shipments and financial supply chain processes.
PO Financing
A/R Financing
Pre-shipment Finance
Invoice Factoring
PO Financing
Financing Programs
Forfaiting
Letters of Credit
Inventory Financing
Buyer Financing
Post-shipment Finance
Documentary Collections
Suppliers Credit
Buyers Credit
Source TradeBeam
12
Other Country Models Korea
TRADERS
SINGLE WINDOW PORTAL GATEWAY
3
Trade Leads Overseas Ads
Financial Institution
U Trade Hub
E Marketplaces E Biz sites InfoTrade sites
KFTC, SWIFTNet, TSU, Bank of Korea, Banks,
Foreign Exchange Network
2
Credit Evaluation
1
Logistics
Data Warehouse
Credit Info Co. Korea Export Ins. Corp.
Shipper/Airliners Forwarder CY, Bonded
Warehouse KLNET, KILC
e-Trade Document Repository
Messaging Hub
Licenses Certification
Union/Assoc. KCCI Quarantine Station Insurance
Co. Private Inst.
Customs
Intl FinancialSettlement
Global Networking
Korea Customs Service Customs Broker
Overseas Branch
ICC
4
5
Foreign Suppliers
PAA
Source KTNET
13
Other Country Models Mexico
A/P sold To Secondary market
5
A/P Buy-back
4
1
A/P posted
3
2
A/P verified approval
Selected A/P Buy
A/P List Electronic Contracts Mgmt
Source Nafinsa
14
Corporate Leadership in GTM

• Early adopter of SCF/GTM solutions realize
  significant benefits

Buyer-specific Improvements
Supplier-specific Improvements
Both
Source Aberdeen Group. December 2007.
15
GTM and SCF Benefits - Today

• Cost Savings
• SCF seeks to eliminate cost from the supply chain
  NOT shift it
• Utilizing a SCF solution can automate manual
  processes
• SCF solutions are often cheaper than traditional
  trade finance solutions
• Service Improvements/Risk Mitigation
• Sharing of data provides visibility to mitigate
  risk and speed responsiveness
• SCF solutions help customers share or mitigate
  risk by re-introducing trade banks into the
  supply chain equation
• Bank trade services are now offered on web-based
  platforms reducing the need for expensive ERP
  solutions
• Automated trade transaction processing and
  reporting capabilities
• Financing Solutions
• Financing solutions can be offered at each step
  of the trade transaction